Predatory Lawmaking

In 2007, Oregon lawmakers made national headlines when
they kicked payday lenders out of the state. Now one of the biggest
debt-collection companies in the U.S. wants to bring a type of lending
to Oregon that consumer advocates say might be as bad as payday loans.

“It’s
a new class of loans designed for the most vulnerable homeowners,” says
Angela Martin, a lobbyist for Economic Fairness Oregon.

The newest wrinkle in
what Martin and other consumer advocates call predatory lending is a
concept the loan industry, led by Encore Capital, calls “tax-lien
transfers.”

The concept, like
many financial products, is at least superficially attractive, because
it promises relief for struggling property owners and also for
cash-strapped county governments.

Here’s how it works: People who are delinquent on their property taxes borrow money from Encore to pay their taxes.

Encore says it can structure more flexible payment terms than county governments can.

“What we offer is a
longer time,” says Lisa Hough, government affairs director for San
Diego-based Encore and its subsidiary, Propel Financial Services. “We
can design a payment plan that works for the consumer.”

Encore would contact
property owners who are in arrears. After Encore and a property owner
agreed to loan terms, the property owner would use the loan to pay the
delinquent taxes and the county would transfer the tax lien to Encore.

For its services,
Encore would collect a $400 fee, then charge 16 percent interest on the
loan and could levy penalties and fees for late payments. Encore would
also jump to the front of the line, getting paid even before an existing
mortgage-holder in the event of foreclosure.

Economic Fairness
Oregon’s Martin notes that although $400 may not sound like much, it can
amount to a big percentage of the taxes owed. And as for the penalties
and fees, the only limitation is that they be “reasonable”—a term
undefined in the proposed legislation.

Although counties
would get their money under such an arrangement, Martin notes, property
owners who are already unable to pay their taxes would now find
themselves beholden to the nation’s largest debt-collection company.

Hough acknowledges
that her company’s fees may add up to more than counties charge, but
unlike counties, which can foreclose after three years of unpaid taxes,
Encore can stretch out the payment period for much longer, she says.

Encore persuaded legislators to introduce House Bill 4112 in the current session in Salem. It would allow tax-lien loans.

An Encore subsidiary,
Propel, pioneered tax-lien loans in Texas in 2007, and last year,
Nevada lawmakers passed a law allowing tax-lien loans there. Those are
the only two states in which the company is making such loans.

Hough says Oregon is an attractive market.

“We are looking at states that charge a high interest rate on delinquent taxes,” Hough says. (The rate here is 16 percent.)

Gil Riddell, a
lobbyist for the Association of Oregon Counties, says his group opposes
Encore’s idea because delinquent property owners can get a better
financial deal by arranging a payment plan with county assessors. “There
isn’t any benefit to taxpayers,” Riddell says.

Also, Riddell says,
taxing jurisdictions currently benefit from delinquent taxpayers because
they pay interest and more than 99 percent of them eventually pay their
taxes.

Read says critics are
being closed-minded—but have stopped the bill for now. He says with
more time, however, the concept might work.

"In the low usage areas, we found that our vehicles sit idle four times longer, ultimately affecting overall vehicle availability for the Portland membership base, as well as parking for the Portland community."

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